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Sovereign Default risk in the Euro zone A further look at a possible exit.
Finance & Accounting
Pages 35 (8785 words)
Sovereign Default Risk in the Euro Zone: A further look at a possible exit Abstract Logistic regression analysis of panel data relating to 24 countries was used to develop a model to predict the probability of default in the Euro zone. In addition to that country specific data was also used n developing a Cypriot model…
The resulting models which were arrived at using the forward stepwise procedure passed various goodness-of-fit tests as well as other tests of the significance of coefficients. This indicates that both CDS spread and Debt/GDP ratio improved the model’s predictive power in the case of the Euro zone while CDS spread was the only significant factor for Cyprus. Tests of the model using in-sample and out-of-sample data shows that it is capable of predicting default and non-default with a high degree of accuracy. 1.0 Introduction Sovereign default has been present in world economies throughout history. One of the countries that have defaulted in the past is Argentina. Very often, it is the same set of countries that are habitually in this state of economic crisis. The 2008 financial crisis has been described as one of the worst to be felt in this modern age since the Great Depression of 1933 (Your reference here). Its effects are still underway and countries around the world are trying their utmost to maintain financial stability. One of the newest currency unions and the most powerful in the world; the Euro-Zone, therefore makes an interesting study. ...
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